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Report of the State Budget Crisis Task Force Summary 1

Report of the State Budget Crisis Task Force Summary 1

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Published by Casey Seiler

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Published by: Casey Seiler on Jul 17, 2012
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 Report of theState Budget Crisis Task Force
A Statement from the Task Force Co-Chairs
Six Major Threats to Fiscal Sustainability
Medicaid Spending Growth Is Crowding Out Other Needs…7Federal Deficit Reduction Threatens State Economies and Budgets…9Underfunded Retirement Promises Create Risks for Future Budgets…12Narrow, Eroding Tax Bases and Volatile Tax Revenues Undermine State Finances…15Local Government Fiscal Stress Poses Challenges for States…17State Budget Laws and Practices Hinder Fiscal Stability and Mask Imbalances…18 
Threats to Fiscal Sustainability Create Risksto Essential State Functions
Conclusions and Recommendations
More information is available atwww.statebudgetcrisis.org
State Budget Crisis Task Force, July 2012
Dedicated to Donald D. Kummerfeld
With the deepest sadness and appreciation we dedicate this report to our friend and colleague, DonaldKummerfeld, who passed away on July 5, 2012. Don’s career spanned public service, investment banking,and publishing. As New York’s Budget Director, First Deputy Mayor, and Executive Director of the EmergencyFinancial Control Board, Don played a critical role in rescuing the city from the fiscal crisis that threatened itin the 1970s, a period during which he worked closely with board co-chair Richard Ravitch. Don understoodthe real world of government decision making and helped in many ways to make it more effective. He broughtinsight, rigor, passion, and a life’s wealth of experience to all aspects of this project, which is immeasurablybetter for his contribution. We will miss him greatly.
 Report of the State Budget Crisis Task Force
A Statement From the Task Force Co-Chairs
July 17, 2012Our purpose in assembling the State Budget Crisis Task Force has been to understand theextent of the fiscal problems faced by the states of this nation in the aftermath of the globalfinancial crisis. While the extent of the challenge varies significantly state by state, there canbe no doubt that the magnitude of the problem is great and extends beyond the impact of thefinancial crisis and the lingering recession. The ability of the states to meet their obligationsto public employees, to creditors and most critically to the education and well-being of theircitizens is threatened.The United States Constitution leaves to states the responsibility for most domesticgovernmental functions: states and their localities largely finance and build public infrastructure,educate our children, maintain public safety, and implement the social safety net. Stateand local governments spend $2.5 trillion annually and employ over 19 million workers—15 percent of the national total and 6 times as many workers as the federal government.State governments are coping with unprecedented challenges in attempting to provideestablished levels of service with uncertain and constrained resources.Within the limits of time and resources, we have examined the financial condition of six heavilypopulated states—California, Illinois, New Jersey, New York, Texas and Virginia. While eachstate varies in detail, a common thread runs through the analysis, supported by informationavailable for states generally.What we found will not be surprising to many knowledgeable observers, but the facts havenever been assembled in a way that reflects the totality of the problems.Certain large expenditures are growing at rates that exceed reasonable expectations forrevenues:Medicaid programs are growing rapidly because of increasing enrollments, escalatinghealth care costs and difficulty in implementing cost reduction proposals. At recent ratesof growth, state Medicaid costs will outstrip revenue growth by a wide margin, and the gapwill continue to expand.Pension funds for state and local government workers are underfunded by approximatelya trillion dollars according to their actuaries and by as much as $3 trillion or more if moreconservative investment assumptions are used.

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